2019•07•08 Bonn, Germany
At this year’s Bonn Climate Change Conference (SB50) the Munich Climate Insurance Initiative (MCII) hosted a side event that brought together experts on risk financing. The discussion was moderated by MCII’s Executive Director, Soenke Kreft, and focused on the importance of risk financing in achieving the Sustainable Development Goals (SDGs) and supporting countries vulnerable to the consequences of climate change in building resilience.
The V20 (group of vulnerable countries) span some of the fastest growing economies worldwide, but face barriers attracting investment capital for resilience and renewable energy projects. This is because climate risks are unevenly distributed and most concentrated in the developing parts of the world, explained Thomas Hirsch of Climate and Development Advice (CDA): Nineteen out of twenty countries with the highest climate risks are developing countries. At the same time, “higher risks translate into higher capital cost and higher debt. In the worst case climate vulnerable countries may end up in a financial trap that makes it impossible to achieve the SDGs,” Hirsch said.
This is a problem that the V20 is addressing through two ambitious initiatives that seek to strengthen the financial architecture to address climate risks and their implications for investment and socio-economic development: the Accelerated Financing Mechanism for Renewable Energy and Maximal Resilience (AFM) and the Sustainable Insurance Facility (SIF).
The AFM is a financial mechanism that aims to increase access to financing for large-scale investments such as climate-proof infrastructure. As the V20 Finance Advisor, Sara Jane Ahmed, highlights, innovative mechanisms like the AFM will be crucial to demonstrate the potential and importance of creating markets for resilience. The purpose of the SIF, on the other hand, is to improve access to climate risk insurance for micro, small and medium-sized enterprises (MSMEs). “These types of businesses are the backbones of national growth and development, but they are often particularly vulnerable to climate change,” explained Viktoria Seifert, a project manager at MCII. “Climate risk insurance can be part of an integrated solution for MSMEs. It can increase access to credit, for instance, but needs to be paired with other strategies such as investment in infrastructure.” The Munich Climate Insurance Initiative hosted at UNU-EHs is a technical partner of the V20 and advises the group on climate risk financing, particularly with regard to the development of the SIF, with the support of GIZ.
A third initiative that was presented was an example from a member of the V20, the Philippines. Kairos de la Cruz of the Institute for Climate and Sustainable Cities (ICSC) introduced the Philippine’s People’s Survival Fund (PSF), a programme that funds projects which increase climate resilience. “We are proud of the fact that most proposals are coming from local governments and organizations, especially those affected by the cyclone in 2009,” de La Cruz said.
While many initiatives seek to add to a sustainable global risk financing architecture, Hirsch remarked that these examples are different from many others. “What makes these initiatives stand out in particular is that they are excellent, innovative and driven by vulnerable countries themselves.”